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3 Top Stocks You've Been Overlooking

By Travis Hoium, Jason Hall, and Brian Feroldi - Updated Jul 28, 2017 at 3:31PM

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Great stock buys may be hiding in plain sight.

Investors can often overlook great stocks for different reasons. A company may not catch the headlines or grab your attention as much as a high-flying stock, or sometimes it's just an unloved company we're averse to owning in the first place. 

We asked three of our investors for their most overlooked stock, and Brookfield Infrastructure Partners (BIP -0.10%), Quintiles IMS Holdings Inc. (IQV 1.57%), and Comcast Corporation (CMCSA 1.52%) bubbled to the top of the list. Here's why you should start paying attention to these companies today. 

Cargo ship unloading containers in a port.

Cargo ship unloading containers in a port. Image source: Getty Images.

This dividend growth stock looks expensive (but it's actually a solid value)

Jason Hall (Brookfield Infrastructure Partners): One of the most important aspects of investing is making sure you pay a reasonable price. There are many wonderful companies out there, with great prospects and solid businesses, but if you pay too high a premium for your shares, you not only reduce your margin of safety but also the potential returns. 

But at the same time, a stock might look expensive, but actually be a bargain, if you don't use the right valuation metrics. And I think that's the case for large real estate and infrastructure asset owner Brookfield Infrastructure Partners right now. 

Trading for around 44 times trailing earnings, Brookfield Infrastructure looks very expensive. However, the price-to-earnings ratio isn't the best way to value this master limited partnership. This is because the majority of its assets are both real estate and long-lived infrastructure assets, which will appreciate in value over time, even though the company is able to take non-cash depreciation and amortization expenses against its earnings. The result are cash flows that are substantially higher than GAAP earnings. 

For this reason, funds from operations -- or FFO -- is a better proxy for earnings for real estate-based entities like Brookfield Infrastructure. By this measure -- price to FFO -- Brookfield Infrastructure trades for around 11 times. That's a good value for such a well-run, stable business with a solid track record of dividend growth, and good long-term prospects for expansion. 

A safer way to play on the biotech boom

Brian Feroldi (Quintiles IMS Holdings): The Food and Drug Administration estimates that less than 10% of new drugs that enter clinical trials will find their way to market. Given the low odds of success and long development timeline, drug developers are willing to spend heavily to give their compounds a better shot at success. That's why many of them look to outside experts for help, which is great news for Quintiles IMS Holdings. 

Quintiles is the global leader in providing information and contract research services to the life sciences industry. It employs an international army of scientists, researchers, and commercialization experts that have decades of experience with the drug development process. The company's global reach and deep industry knowledge make it the go-to partner for the drug development process. As a testament to its importance, consider that Quintiles helped to develop or commercialize 98 of the top 100 best-selling pharmaceutical products on the market in 2015.

For investors, owning shares of a leading provider of information and contract research services has a few key advantages. First, the clinical trial process takes years to complete, so each time Quintiles lands a new contract, it gains a lot of visibility into its future revenue stream. As of the most recent quarter, it reported more than $9.6 billion of work in its backlog. Since only a third of that total is expected to be converted into revenue over the next year, investors can rest easy knowing that this company's top line is in great shape over the next few years.

Second, pharma companies tend to need a lot of help with the commercialization process, too. Quintiles can help here as well since it has data on more than 530 million patient medical records worldwide. When paired up with the company's analytical capabilities, Quintiles can help pharmaceutical companies with physician targeting to help make their drug launch successful.

When combined, these two businesses provide predictable profits that can be used to reward shareholders. Last quarter, the company spent more $1.3 billion on stock buybacks and it still has another $850 million of repurchases authorized. Those are meaningful numbers when compared to its market cap of about $20 billion. 

Looking ahead, the aging of the global population suggests that the demand for drugs will continue to grow for years to come. That should prove to be a nice tailwind for Quintiles' investors. With shares trading around 18 times next year's earnings estimates, I think that right now is a great time to give this little-known growth stock a closer look.

The investment you'll love to hate

Travis Hoium (Comcast): There may not be a company in the country as loathed as Comcast today. No one likes paying their cable bill, and Comcast takes the brunt of the frustration over high prices and the plethora of channels customers rarely watch. 

But a company that's not liked by customers can be a great buy for investors. In many of Comcast's market, it has essentially a monopoly on the cable and broadband market, which will keep generating revenue for decades to come. You can see below that Comcast's net income has surged over the past decades, despite constant complaints about the company. 

CMCSA Chart

CMCSA data by YCharts.

On top of the strong earnings from cable and broadband, Comcast set itself up well for the future when it bought NBC Universal from GE in 2011, adding an industry-leading content company. The company has explored streaming content, including charging fees for live sporting events, something that could be a growth platform in the future. 

It's easy to look past an unloved and boring company like Comcast, but it keeps growing and churning out profits year after year. And with shares trading at just 21 times earnings, this is a solid value the market is overlooking. 

Brian Feroldi has no position in any stocks mentioned. Jason Hall owns shares of Brookfield Infrastructure Partners. Travis Hoium has no position in any stocks mentioned. The Motley Fool recommends Brookfield Infrastructure Partners and Quintiles IMS Holdings. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Comcast Corporation Stock Quote
Comcast Corporation
CMCSA
$40.00 (1.52%) $0.60
Brookfield Infrastructure Partners L.P. Stock Quote
Brookfield Infrastructure Partners L.P.
BIP
$41.50 (-0.10%) $0.04
IQVIA Holdings Stock Quote
IQVIA Holdings
IQV
$245.81 (1.57%) $3.81

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